Exclusive: AOL mulls breakup, then merger with Yahoo

Mon Dec 6, 2010 1:54pm EST
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By Nadia Damouni

NEW YORK (Reuters) - AOL Inc is actively exploring a breakup of the company in a complicated series of transactions that may lead to a merger with Yahoo Inc, sources close to the plans told Reuters.

AOL has not yet made a formal proposal to Yahoo, these people say.

Shares of AOL rose 1.5 percent in afternoon trading, while Yahoo edged down 0.1 percent.

In many respects, the latest discussions derive from plans contemplated in 2008 and 2009 before Time Warner spun off AOL to Time Warner shareholders.

At the time, the media conglomerate had explored the option of breaking apart AOL's two main businesses. The legacy dial-up Internet service would have been spun off or sold to EarthLink or United Online, while the display advertising business would have been merged into Yahoo, the sources said.

Pushing ahead with plans to rid itself of a decade-long nightmare, Time Warner spun off AOL rather than face heavy tax liabilities that would have been associated with a breakup, said the sources.

The sources requested anonymity because they were not authorized to speak to the media.

AOL has continued to explore a breakup and other options since the December 2009 spinoff. "You can drive the pieces into people's hands that could pay top dollar for them and create value, or spin them off," said one of the sources.   Continued...